Washington Notebook: Economists predict more slow growth as government shuts down

U.S. economy to grow about 2.5 percent next year, experts say.   The U.S. economy will continue to muddle along at nearly the same slow pace of the past couple years in 2014, according to economists at last week’s FTR Associates conference in Indianapolis. 
   William Strauss, senior economist for the Federal Reserve Bank of Chicago, said a survey of blue-chip economists predicts the economy will register 2.1-percent growth this year, with output edging up to 2.8 percent next year, compared to 2 percent GDP in 2012. 
   He said third quarter growth is expected to come in below the second quarter reading of 2.5 percent.
   The Federal Reserve’s Open Market Committee last month downgraded its outlook, saying growth will be close to 3 percent next year and slightly above 3 percent in 2015, before dipping back in 2016.
   Strauss attributed the “deja vu economy” to the lingering effects of wealth reallocation from the bursting of the financial bubble and slow household formation as young people room together or stay with parents until incomes and job prospects improve, which has crimped the housing market.
   There is still slack in the market because economic growth has returned to what it should be after the recession, but has not risen enough to make up for the lost productivity and jobs. There are still more than 7 million workers who can’t find work even though the economy has added more than 6 million workers in the last three years, he said. It will take at least three more years for labor markets to get close to their natural position of less than 6 percent unemployment, he added.
   The manufacturing sector has grown 4.7 percent during the past 50 months, well above historical growth of 3 percent, but the growth in productivity is not producing many jobs because companies are becoming more automated, Strauss said. Only 22 percent of manufacturing jobs have been recovered since the recession despite an 82-percent improvement in output. Companies have replenished their inventories, which will slow manufacturing, he said.
   Bill Witte, economics counselor to FTR and a former economics professor at Indiana University, predicted GDP will grow at about 2 percent, or just below, in the second half of 2013, with consumption at about the same rate, weak business investment, tapering in the housing market as interest rates rise, and modest improvements in exports and imports. 
   His forecast calls for GDP to grow between 2.5 percent to 3 percent next year. His colleague, Noël Perry, predicted a flat economy into next year.
   A flat economy caused by a slowdown in the service sector could still translate into slight growth for the freight industry, Jonathan Starks, FTR’s director of analysis said. Although growth has been tepid, the sector has benefited from the lack of volatility during the past two or three years, he said.
   Witte said any unforeseen events, such as an escalation of fighting in Syria or a temporary government shutdown, won’t be enough to hurt the economy by more than a couple tenths of a percent in GDP. The United States tipped into recession in 2008 because economic shocks coincided with a massive imbalance of resources in the housing and financial markets, which isn’t the case today, he said.
   FTR Associates is a freight econometrics firm based in Bloomington, Ind.

Budget impasse leads to partial government shutdown.   The U.S. government shut down non-essential services as of midnight, as Congress was unable to reach a compromise on a temporary measure to fund the government for six weeks. House Republicans are insisting on a one-year delay a to the individual mandate for President Obama’s signature piece of legislation, the Affordable Care Act, and other changes to the health care law after trying to defund it.
   Democrats, who control the Senate, have rejected the idea of tampering with the health care law to resolve a budget issue. 
   Lost in the debate is the fact that the extension would just be a short reprieve of a couple months when Congress should be passing appropriations bills to fund the government for the entire fiscal year. That means we’ll be back to this same debate in a couple months.
    Non-essential personnel are being furloughed. The shutdown will not effect positions such as air traffic controllers or Customs agents working passenger and cargo checkpoints at the border and airports. 
   A shutdown for more than a few days is expected to hurt business activity, as tasks such as issuing permits, processing applications, conducting background checks and other services are put on hold.